I'm an Economist and Former Congressional campaign strategist and Ex-GM of Wu Tang Management. As CEO of AfricaPrebrief – I guide US-based investors in African economies. I write in memory of Jude Wanniski (polyconomics.com)

While The Stock Market Is Reeling, President Obama Should Announce Broad Capital Gains Tax Cuts

“Obama has previously called for eliminating capital gains taxes on investments in small businesses and start-ups and today proposed an additional temporarybusiness tax incentive through next year to encourage new investments.”

President Obama and the capital gains tax have crossed paths before, but only economic and political circumstance brings them together in a meaningful way. That was the case in October 2008 when President Obama unexpectedly unveiled his ‘Small Business Rescue Plan’ - well-timed to complement his support of the government bailout of Wall St. banks and a common man insurgency led by ‘Joe The Plumber.’ And so it is again, with global financial markets reeling while the President’s focus on income inequality draws mixed reviews.

“One person who took part in a briefing said Mr. Obama is likely to make overtures to congressional Republicans. He may, for example, call for zero capital gains tax for certain small-business formation and urge renewal of various business tax incentives that have expired, likely including a research credit for businesses. Previous versions of the zero-capital- gains proposal in Washington have aimed at benefiting so-called angel investors who help startups such as manufacturers. The proposal typically has not been tailored to help investors in many financial and professional-services startups.”

English: U.S. President waves to the joint session of Congress upon completing the . (Photo credit: Wikipedia)

The President’s worst enemies in his embrace of the issue will be those on the Left – members of the Democratic Party who are part of an establishment which doesn’t understand how capital can be unlocked for the poor and talented via fiscal policy.

President Obama can overcome them, though, with a message of entrepreneurial optimism – something much more consistent with his brand than the backward looking Affordable Care Act. He’s already taken a credible step with his JOBS ACT. By speaking to how the interests of both entrepreneurs and wealthy investors correspond, President Obama can rally Main St. and Wall St. behind him and force Republicans to the table for a grand bargain.

“Ted Forstmann…may well be the most successful entrepreneurial financier of our time. It was Forstmann, now a man of immense wealth who began his career with nothing more than a good education at Yale and a trust fund that provided him $500 a month, who let me in on a secret. Men of wealth, he told me, are not interested in a lower capital gains tax, because their gains are behind them. The people who benefit most from a lower capital gains tax, he said, are those who have no wealth, but aspire to it…..Forstmann told me the correct tax on capital gains is zero. What we are talking about here is the essence of capitalism….In the kind of capitalism we have here in the United States, people invest in each other. People with capital invest it in people without capital. Old people invest in young people. Rich people invest in middle-class people and the middle class invests in poor people with promise. People in cities invest in country people, and farm people in town people.

When all this activity is at a high level, the economy is too…..When the capital gains tax is high, riskier investment in the young and the small and the promising, aspiring poor will dry up. …When the capital gains tax is low, and there are more people encouraged to invest in each other, there is also a lot of employment. People who start a new enterprise with new capital hire helpers, and whether the enterprise eventually succeeds or not, the workers are earning weekly wages and paying taxes — not only income taxes to the federal government, but taxes of all kinds to state and local governments. People on unemployment benefits and welfare rolls are employed and begin adding tax revenues to City Hall and the county and the state, instead of living on public welfare.”

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